Tribunal grants partial refund on service tax interest; cenvat credit limits refund claim.

The Tribunal partially allowed the appeal, ruling in favor of the appellant on the refund of interest paid on service tax. However, the refund claim was restricted by the amount of cenvat credit attributed to non-taxable output service, in accordance with Rule 6.

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Issues:
1) Whether the appellant's refund claim can be restricted by the amount of cenvat credit availed on input service attributed to non-taxable output service as per Section 102 of Finance Act, 2016.
2) Whether the appellant is entitled to a refund of interest paid on service tax when the service tax becomes non-taxable under Section 102 of Finance Act, 2016.

Analysis:

*Issue 1:*
The appellant argued that since the output service became non-taxable due to a retrospective amendment, the cenvat credit availed on input service should not be reversed. Citing a judgment, the appellant contended that reversal of cenvat credit cannot be insisted upon when the service was taxable at the time of credit availment. However, the Tribunal found that the retrospective exemption of the service rendered the cenvat credit on input service inadmissible. The Tribunal differentiated this case from the precedent cited by the appellant, stating that the facts were dissimilar. Rule 6 mandates that cenvat credit is not allowed for input service used in non-taxable/exempted service. Consequently, the Tribunal upheld the lower authority's decision to restrict the refund by the amount of cenvat credit on input service related to non-taxable output service.

*Issue 2:*
Regarding the refund of interest paid on service tax, the appellant's entitlement was supported by a previous tribunal order. The Tribunal concurred that when service tax is not payable, the interest paid on it becomes refundable. Referring to the previous case, the Tribunal ruled in favor of the appellant, stating that interest is linked to service tax and should be refunded when service tax is refunded. Consequently, the Tribunal allowed the appeal partially, directing the refund of interest paid on the output service in addition to restricting the refund claim by the cenvat credit amount attributed to non-taxable construction service.

In conclusion, the Tribunal partially allowed the appeal, deciding in favor of the appellant on the refund of interest paid on service tax while restricting the refund claim by the cenvat credit amount related to non-taxable output service.

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